A Hawaii economic group says the state’s expansion remains on track thanks to a bustling construction sector, but global conditions this year could derail growth.

The University of Hawaii Economic Research Organization said in a report due out today that strength in construction and a pause in federal sequestration have arrived at just the right time as record-setting levels of visitor activity are beginning to feel the adverse effects of financial market volatility.

“While risks have clearly heightened in recent months, our outlook is for fairly decent growth over the next several years,” UHERO said in its latest Hawaii forecast.

In what generally was a cautionary report, UHERO revised its growth forecast as measured by inflation- adjusted gross domestic product to 3.2 percent from 3.1 in its December forecast. GDP is the broadest measure of economic output.

The organization projected visitor arrivals would produce a fifth straight record year but called for arrivals to rise just 1.3 percent rather than 1.5 percent as predicted in its earlier forecast. UHERO expects Japan arrivals to slip 0.5 percent and continue to be a drag on the state’s tourism sector. In 2015, Japan visitor arrivals were down 0.8 percent, and spending was off 9.8 percent due to the weak yen.

“The strong arrivals figures (a record 8.6 million visitors in 2015) mask a substantial deceleration of visitor spending, related in part to the strengthening U.S. dollar,” UHERO said. “Since 2011 the Australian, Canadian and Japanese currencies have all fallen by roughly 30 percent against the U.S. dollar.”

UHERO said the overall visitor outlook remains favorable, but gains will fall short of recent years. It is projecting visitor arrivals to inch up just 1 percent in 2017 and 1.2 percent in 2018.

Hawaii’ s job growth is outpacing expansion of the labor force and driving down the unemployment rate, UHERO said. The seasonally adjusted unemployment rate for Hawaii in January was 3.2 percent, the lowest level since January 2008. The organization said the jobless rate is expected to average 3 percent this year, down from 3.1 percent in its previous estimate.

“The pace of growth in payroll jobs has eased as we have moved from the business cycle recovery period onto a more typical long-run path,” UHERO said. “Job growth averaged more than 2 percent in 2012-2013. Last year payrolls increased by 1.4 percent, fewer than 9,000 jobs.”

With that pace slowing, UHERO revised lower its job growth forecast to 1.3 percent from 1.5 percent in its December forecast.

“The impetus for growth has increasingly shifted away from travel and tourism, which led the state’s emergence from recession,” UHERO said. “Now it is construction that is generating the greatest job gains. The sector really kicked into high gear in 2015, accounting for nearly one-third of all jobs created.”

UHERO estimates that construction jobs in Hawaii increased 8 percent last year while other sectors increased by about 1 percent.

The organization also said that medium-term prospects for federal employment remain bleak even though recent legislation has deferred the next round of federal budget battles until after the presidential election.

“Things look a bit better at the state and local levels, where budget constraints are likely to be less severe,” UHERO said.

With the labor market getting tighter, UHERO said there have been significant gains in personal income.

“Real (inflation adjusted) income per employed person last year posted its strongest growth since 2012,” UHERO said.

Still, UHERO revised lower its personal income growth to 2.3 percent from 2.7 percent in its December forecast even though it projected inflation to rise by 1.7 percent this year rather than the 2 percent it anticipated in its earlier forecast.

“While headline inflation has remained low, it is clear that prices for many goods and services are beginning to increase,” UHERO said. “Core inflation, which excludes the volatile food and energy components, ticked up 2.7 percent (in 2015), the fastest pace since 2007.”

UHERO said there remains a risk that global conditions could derail the state’s economy. Among the concerns are a market slowdown in China and the adverse effects on developing countries of plunging commodity prices that come at a time when the Federal Reserve has begun moving away from ultralow interest rates.

“The result has been growing financial market volatility and weakness, and depreciation of many currencies against the dollar,” UHERO said. “This does not mean we are in for a global recession, or that global conditions will deteriorate enough to badly hurt Hawaii. The U.S. economy has held up well so far.”

Still, UHERO said the situation remains precarious.

With the U.S. only managing 2-plus percent growth, and with little room for monetary easing and zero appetite for fiscal stimulus, a prolonged financial market turnaround, additional dollar appreciation or excessive Fed tightening could tip things downward, UHERO said.

“Since the U.S. is the slow-growth engine at present, that would swing the global economy toward recession,” UHERO said. “If that were to happen, all bets would be off for Hawaii growth.”